Rural Consumption Bounces Back After More Than A Year, Says NielsenIQ
The increase in product prices slowed to 6.9% between January and March, aiding rural consumption to grow 0.3% during the quarter.
Consumption of soaps-to-staples in rural India bounced back for the first time in six quarters in the quarter ended March as inflation and price hikes softened, according to market analytics firm NielsenIQ.
The increase in product prices slowed to 6.9% between January and March from 7.9% in the previous quarter, aiding rural consumption to grow 0.3% during the quarter, NielsenIQ said in a report. Urban markets, meanwhile, maintained their steady growth rate, rising 5.3% in the first three months of 2023, bringing the overall volume growth to 3.1% for the period.
Several companies, including Hindustan Unilever Ltd., Marico Ltd., and Adani Wilmar Ltd., have cut prices as commodity costs came off their highs. So far, the industry has reported mixed earnings during the quarter due to a different product mix. Those like Nestle India Ltd., who are only in the food business, have posted exceptional growth, beating estimates, while the likes of HUL and Dabur India Ltd., who are also in the non-food business, reported muted volume growth and shrinking margins during the quarter.
Price hikes coupled with a demand rebound in mom-and-pop stores helped boost the overall value of sales by 10.2% in the first quarter, faster than 9.2% and 7.6% growth in the previous two quarters, respectively.
"The upward trends seen in rural markets are particularly encouraging and may be the turning point for the industry," said Satish Pillai, managing director-India, NielsenIQ. Even though easing inflation has given consumers the confidence to buy more, the shift towards larger packs is still awaited. Consumers living paycheck to paycheck are still buying smaller packs to save money.
Within channels, traditional trade has seen a consumption growth revival (1.9%) for the first time in one year, primarily driven by grocers, the report said, while modern trade retained a double-digit growth of 14.6%.
The average pack size growth has improved for the last three quarters but remains negative in both urban and rural areas, according to the report.
Modern trade, however, has seen a further decline in average pack size growth to 6% as compared with a decline of 4.9% a quarter ago, while traditional trade has seen an upward movement, according to NielsenIQ.
As grammage reduction and the shift towards smaller packs continue, it becomes increasingly critical for manufacturers to focus on innovations and optimise their assortment to cater to changing consumer demands, according to Roosevelt D’Souza, customer success leader (India), NIQ.
Non-Food Rebounds; Food Sees Further Uptick
The food category continues to witness higher consumption growth, rising 4.3% in Q1 compared with 1.6% in the previous quarter, with staples driving this uptick, according to NielsenIQ. The non-food category, however, grew only 0.2%, dragged down by a decline in demand for personal care products.
"After six consecutive quarters of decline, consumption growth for non-food categories turned positive this quarter, led by growth in home care, but personal care continues to fall," the analytics firm said.
What Lies Ahead
NielsenIQ expects India’s FMCG industry to clock a value growth of 7-9% for the full year of 2023 despite global uncertainties. The latest estimate is slightly higher than the industry's previous year’s growth rate of 8.35%.
"Pressure on consumers, low confidence levels, and the high unemployment rate may act as headwinds," according to NielsenIQ.
"On the other hand, announcements made in the Union Budget 2023 on agriculture and capex investments, along with revisions in the tax regime, the 6.4% GDP growth forecast by the Reserve Bank for the next fiscal, and the forecast of normal rainfall (an adequate and timely monsoon) act as a tailwind," it said.